One of my favorite business axioms is, “If they come for price - they will leave for price.”  In other words, if your customers are buying from you because your prices are the lowest in the market, then as soon as one of your competitors lowers their price - your customers will leave you and buy from one of them.

     Mistakenly, most business owners assume that their customers are price-sensitive.  They get this idea because when they have a sale more people buy.  When their product or service is not on sale, fewer people buy.  Many business owners challenge me by asking, “What more proof do you need?”

     Actually, I’ll need a lot more proof because The Retail Strategy Center did a study on this topic and produced some fascinating results that support my business axiom.  Many business owners regularly advertise deeply discounted prices in an effort to bring new customers into their stores.  Their belief is that, over time, they can convert these price-sensitive customers into regular, profitable customers.  This belief is a myth.  The Retail Strategy Center’s research shows that the majority of customers who were lured in by deep discounts are no longer customers within 12 months of their first shopping visit.

     You will be hard-pressed to yield an attractive return when you have to deeply discount your product or service to get the customer, only to have them leave within 12 months.  These price-sensitive buyers give you very little profit.  Since they generally buy only discounted products, the margin on their sales is much lower than the margin on the sales to your regular customers.  In fact, you may find that your regular customers are subsidizing the sales of your price-sensitive customers.

     Here is the most devastating aspect of conducting business as if your customers were price-sensitive.  By having discount sales, you gradually convert your regular customers into price-sensitive buyers.  You train them to check the prices of competitors’ offerings.  Their reasons for buying from you gradually shift from relationship, customer service, and dependability to the much weaker and less loyal reason of your product's price.

     Don’t compete on price!  Remember my business axiom, “If they come for price - they will leave for price.”